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Adjustments 

tlirougli 

Klimination 


includlne  a.  detailed  explanation  of 


l^hy  Trial  Balance  Totals  Vary, 


By 


Conciultins  Accountant  and  A-uditor 


Pablished  by 

C.  E.  FREEMAN 

816  SUte  Life  Building 

Indianapolis,  Indiana 


H^Ta^ 


CJOPT^IQBT  1811 
BT 

O.  E.  FREEMAN 


The  forms 
be- 

Brratai. 

given  in  Art.  97  shouhl 

s'/ 

D  /           C     / 

D/           D 

/            ^ 

/    or                      etc 
/C              ,    jD 
/  D                   ti) 

/  c               c 

The  last  worrl  in  first  line  of  foot 
note  below  Art.  ISl  should  be  Ac- 
count instead  of  Accrued. 

PREFACE. 

While  It  has  been  said  that  "there  is  nothing  new  under 
the  .sun/'  the  author  presents  this  manual  with  the  sincere 
belief  that  such  an  application  of  the  principles  involved 
has  never  before  been  made,  except  in  his  own  work. 

His  claim  of  originality  in  the  combination  of  principles 
in  that  which  follows  is  based  on  the  fact  that  during  a 
continuous  and  varied  experience  of  thirty-four  years  as 
Book-keeper,  Teacher  of  Book-keeping,  Secretary  of  a 
Commercial  College,  Public  Accountant  and  Auditor,  and 
general  investigator  of  accounts  and  matters  pertaining 
thereto,  combined  with  an  extensive  reading  of  accountancy 
literature,  he  has  never  known  the  following  methods  to 
have  been  used  or  referred  to. 

He  therefore  believes  this  treatise  will  be  of  interest  to 
any  whose  vocation  requires  a  thorough  understanding  of 
the  principles  of  double  entry,  and  that  in  so  far  as  it  is  here- 
in advocated  it  will  prove  to  be  of  practical  benefit  to  any 
book-keeper  who  may  become  familiar  with  the  system  ex- 
plained. 


224469 


INTRODUCTORY. 

1.  In  order  that  a  Trial  Balance  may  furnish  in  the  most 
comprehensive  form  such  information  as  it  necessarily  con- 
tains, the  Baiance  of  Balances,  as  so  distinguished  from  a 
Balance  of  Totals,  has  become  the  one  in  most  common  use, 
and  it  is  this  particular  form  that  is  incorporated  as  an  im- 
portant part  of  the  system  hereinafter  explained. 

2.  As  a  means  of  proof,  the  Balance  of  Balances  has  been 
combined  in  that  which  follows  with  the  principles  that  ap- 
ply to  the  elimination  of  all  entries  which  have  no  influence 
in  changing  the  totals  of  such  Trial  Balances,  while  the  com- 
bination referred  to  has  been  amplified  in  such  a  manner 
that  to  a  certain  degree  it  will  simplify  the  location  of  er- 
rors through  an  additional  elimination  of  all  entries  which 
may  be  known  to  be  correct,  when  an  examination  becomes 
necessary  to  adjust  discrepancies. 

3.  The  references  kerein  made  to  (a)  the  Balance  of 
Balances,  and  more  especially  to  (b)  the  Balance  of  Totals 
and  (c)  the  totals  of  a  Trial  Balance,  should  not  be  con- 
fused. To  avoid  any  possible  misunderstanding  regarding 
the  use  of  these  terms  let  it  be  understood  that — 

(a)  a  Baiance  of  Balances  is  that  form  of  a  Trial  Bal- 
ance wherein  only  the  excess  of  the  debit  or  credit 
column  of  each  ledger  account  is  shown ;  while — 

(b)  a  Balance  of  Totals  is  that  form  of  Trial  Balance 
which  contains  the  totals  of  both  debit  and  credit 
columns  as  they  appear  in  the  open  ledger  accounts ; 
and — 

(c)  the  references  made  to  Ti'ial  Balance  Totals,  or  the 
totals  of  a  balance,  indicate  especially  the  final  cor- 
responding and  balancing  debit  and  credit  totals  of 
a  Trial  Balance,  which  might  be  in  the  form  of  a 
Balance  of  Balances,  or  a  Balance  of  Totals. 


4.  It  is  presumed  that  the  reader  has  a  general  knowl- 
edge oi  Double  Entry  book-keeping,  including  many  of  the 
principles  that  are  herein  mentioned ;  but  in  order  to  avoid 
the  omission  of  any  essential  link  from  the  explanatory 
chain,  it  has  been  deemed  an  important  feature  that  due  at- 
tention should  be  given  to  certain  fundamental  facts  di- 
rectly connected  with  the  subject  and  necessarily  submit- 
ted in  review. 

5.  It  is  therefore  offered  as  axiomatic — (A)  That  the 
balancing  totals  of  any  one  Trial  Balance  cannot  be  ex- 
pected to  exactly  correspond  in  amount  with  the  balancing 
totals  of  any  other  Trial  Balance  taken  from  the  same 
ledger  at  a  different  date.  (B)  That  it  usually  occurs  that 
the  Trial  Balance  totals  gradually  increase  from  month  to 
month  until  such  time  as  the  accounts  are  systematically 
closed. 

These  axioms,  while  mentioned  as  peculiarities  of  a  Bal- 
ance of  Balances,  will  apply  as  well  to  a  Balance  of  Totals.* 

6.  Other  established  principles,  quite  as  simple  as  the 
foregoing  and  presumably  as  well  understood  by  the  reader, 
are  also  referred  to  in  the  following  pages  in  order  that  they 
may  be  subsequently  combined  in  such  a  manner  as  to  ac- 
complish the  desired  result. 

7.  While  the  facts  referred  to  in  Art.  5  (A  and  B)  are 
but  simple  propositions,  it  may  not  be  so  generally  known 
that  there  is  a  possibility  of  the  balancing  totals  in  a  Bal- 
ance of  Balances  being  exactly  the  same  in  anwunt  as  such 
totals  in  one  or  more  similar  forms  of  trial  balances  taken 
from  the  same  ledger  at  different  dates,  and,  furthermore, 
that  the  amount  of  such  totals  in  one  Trial  Balance  may  be 

•Beyond  this  point  all  references  herein  made  to  a  Trial  Bal- 
amee  are  especially  intended  to  indicate  a  Balance  of  Balances  as 
defined  in  Art  3- (a). 


even  less  than  those  of  the  Trial  Balance  wliich  next  pre- 
ceded it.  Such,  however,  is  the  case,  although  the  possi- 
bilities of  such  occurrences  in  actual  practice  may  be  said  to 
be  very  remote. 

8.  Through  an  understanding  of  the  principles  herein- 
after illustrated,  such  facts  as  those  referred  to  will  become 
apparent ;  but  in  order  to  inteUigently  explain  them  and  the 
principles  that  govern  and  apply  to  ^'Adjustments  through 
Elimination/'  the  preceding  brief  acknowledgment  of  the 
possibilities  of  equality  and  variation  to  which  the  totals 
of  Trial  Balances  of  different  dates  are  subject,  has  been 
considered  a  necessary  preliminary,  and  it  is  quite  as  im- 
portant that  the  reader  should  first  understand  "Why  Trial 
Balance  Totals  Vary." 


SECTION  I. 
Why  Trial  Balance  Totals  Vary. 

9.  Regardless  of  the  variety  and  number  of  posting  me- 
diums, or  books  of  original  entry,  that  are  employed  in  any 
business  as  being  particularly  adapted  to  the  needs  and  re- 
quirements of  any  individual  double-entry  system,  the  fun- 
damental principles  of  double-entry  book-keeping  which  re- 
quire a  continuous  equilibrium  in  the  aggregate  amount  of 
debit  and  credit  items,  may  always  be  exemplified  in  every 
particular  through  journal  entr)'  forms. 

10.  An  explanation  of  this  division  of  the  subject  is 
therefore  simplified  by  introducing  only  the  Journal  in  con- 
nection with  the  Ledger  and  Trial  Balance.  Other  varia- 
tions are  considered  in  subsequent  pages. 

11.  Simple  though  it  may  appear,  the  fact  should  be 
noted  that  every  open  ledger  account  must  represent  either 
an  excess  of  debits,  or  an  excess  of  credits,  or,  in  other 
words,  a  debit  or  a  credit  balance. 

12.  Another  simple  fact  worthy  of  notice  is,  that  every 
posting  made  to  an  open  account  will  result  in  either  in- 
creasing or  decreasing  a  debit  or  a  credit  balance. 

13.  It  not  infrequently  occurs,  however,  that  postings 
are  made  which  do  not  aflfect  a  prior  individual  balance  in 
an  open  account,  as  in  cases  where  a  debit  or  a  credit  bal- 
ance is  created  through  the  opening  of  a  new  account;  or 
through  similar  conditions  when  reopening  an  old  account 
that  was  previously  closed. 

14.  Under  such  conditions  and  in  either  case  referred 
to  in  Art.  13,  while  there  would  be  no  prior  individual  bal- 
ance affected,  the  aggregate  debit  (or  credit)  balances  in 
the  ledger  would  be  increased. 


15»  Another  possible  variation  that  should  be  taken  into 
consideration  is  the  occasional  posting  of  an  amount  to  an 
open  account  which  overbalances  the  difference  that  ex- 
isted between  its  total  debits  and  total  credits  before  the 
posting  was  made,  i.  e.,  by  posting  a  greater  amount  than 
its  prior  balance  and  thus  creating  a  credit  balance  where  a 
debit  balance  was  previously  shown;  or  vice  versa. 

16.  To  fully  cover  the  requirements  of  the  following 
system,  such  overbalancing  entries  as  those  mentioned  in 
Art.  15  should  be  theoretically  considered  as  consisting  of 
two  parts ;  one  of  which,  by  exactly  equaling,  would  serve 
to  cancel  the  prior  balance  of  the  account  and  thus  decrease 
the  aggregate  of  either  the  debit  or  the  credit  balances, 
while  the  other  part,  representing  the  excess  over  and  above 
the  amount  of  the  prior  balance,  would  create  a  new,  and 
contra,  credit  or  debit  balance  in  the  amount  of  such  ex- 
cess, through  which  its  effect  on  the  aggregate  amount  of 
such  contra  balances  in  the  entire  ledger  would  be  similar 
to  that  produced  through  a  posting  which  served  to  open 
a  new  account. 

17.  The  separate  consideration  beyond  this  point  of  the 
effect  of  overbalancing  entries,  entries  that  open  new  ac- 
counts and  postings  made  to  accounts  containing  prior  un- 
settled items,  may  be  avoided  by  recognizing  the  fact  that 
when  the  aggregate  amount  of  either  debit  or  credit  bal- 
ances in  the  ledger  is  considered,  the  creation  of  a  new  bal- 
ance (either  through  the  opening  of  a  new  account  or  by 
the  surplus  of  an  overbalancing  entry)  has  a  similar  effect 
on  said  aggregate  amount  as  that  produced  by  posting  an 
item  to  that  side  of  an  open  account  in  which  an  excess  of 
debits  or  credits  existed  before  the  posting  was  made. 


IS.  With  this  understanding  (Art.  17)  an  explanation 
of  the  manner  in  which  individual  balances  are  increased  or 
decreased  may  be  simplified  by  considering  open  accounts 
only,  as  below : 

19.  1 — When  the  balance  of  an  open  account  is  an  ex- 

cess of  debits,  it  would  be — 

(A) — increased  by  a  debit  posting;  or 
(B) — decreased  by  a  credit  posting. 
2 — When  the  balance  of  an  open  account  is  an  ex- 
cess of  credits,  it  would  be — 

(A) — decreased  by  a  debit  posting:  or 
(B)-^ncreased  by  a  credit  posting. 

We  thus  obtain  the  symbols  1-A.  1-B.  2- A  and  2-B  for 
subsequent  use  and  reference. 

20.  Simply  to  illustrate  the  statements  made  in  Art.  17, 
it  ma\-  be  noted  that  any  entry  which  serves  to  open  a  new 
account  will,  if  it  "he  a  debit,  correspond  with  condition  1-A, 
as  it  will  increase  the  aggregate  amount  of  debit  balances; 
while  if  it  be  a  credit  it  will  correspond  with  condition  2-B, 
as  it  will  thus  increase  the  aggregate  amoimt  of  credit  bal- 
ances. Any  entry  which  overbalances  a  ledger  account  will, 
in  the  amount  of  the  prior  balance  that  is  cancelled  thereby, 
either  decrease  the  debit  balances  as  in  1-B,  or  decrease  the 
credit  balances  as  in  2-A,  as  the  case  may  be ;  while  the  sur- 
plus, or  that  part  of  such  entr\'  in  excess  of  said  prior  bal- 
ance, will  have  the  same  effect  as  would  an  entry  which 
served  to  open  a  new  account,  as  previously  explained. 

21.  Through  a  varied  inspection  of  the  symbols — 1-A, 
2-A,  1-B,  2-B — with  changes  in  the  phraseology  applied  to 
their  definitions,  while  retaining  the  same  meaning  for  each, 
it  is  hoped  that  further  explanations  may  be  simplified. 


22.  Let  these  symbols,  therefore,  be  next  defined  in  the 
following-  manner : 

1-A — To  increase  a  debit  balance  a  debit  posting  must 
be  made. 

1-B — To  decrease  a  d'ebit  balance  a  credit  posting  must 
be  made. 

2-A — To  decrease  a  credit  balance  a  debit  posting  must 
be  made. 

2-B — To  increase  a  credit  balance  a  credit  posting  must 
be  made. 

23.  In  other  words,  tire  increase  or  decrease  of  account 
balances  is  occasioned  by  original  entries,  which,  in  the 
ledger  accounts — 

1-A — Debit  a  debit  balance.* 
1-B — Credit  a  debit  balance. 
2-A — Debit  a  credit  balance. 
2-B — Credit  a  credit  balance.* 

24.  The  facts  above  symbolized  as  l-x\,  1-B,  2-A  and 
2-B  embody  all  conditions  of  debit  and  credit  as  they  relate 
to  causes  through  original  entries  when  considered  in  rela- 
tion to  th^ir  effects  on  the  balances  of  ledger  accounts. 

25.  As  for  every  debit  there  must  be  an  equal  credit, 
we  must  consider  the  foregoing  symbols  in  pairs,  to  repre- 
sent the  simplest  form  of  journal  entry,  wherein  there  is 
only  one  debit  and  one  credit  item  ;  which  is  sufficient  for 
present  consideration. 

•Let  it  be  remembered  that  in  so  far  as  results  are  concerned, 
to  debit  a  debit  balance  (1-A)  is  equivalent  to  the  creation  of  a 
new  debit  balance  and  that  to  credit  a  credit  balance  (2-B)  is 
equivalent  to  the  creation  of  a  new  credit  balance  in  both  indi- 
vidual accounts  and  aggregate  balances,  and  also  that  (Art.  17) 
the  creation  of  balances  through  the  opening  of  new  accounts  Is 
equivalent  to  that  portion  of  an  overbalancing  entrv  which  ex- 
ceeds the  balance  cancelled   thereby. 


26.  Referring  now  "to  combinations — the  mathematical 
definition  of  which  is  'the  different  collections  that  may 
be  formed  out  of  a  given  number  of  things,  taken  a  less 
number  at  a  time,  without  regard  to  the  order  in  which 
they  are  arranged" — let  it  be  noted  that  thfere  are  six  com- 
binations of  two  each,  and  six  only  ,that  can  be  formed  from 
four  different  things. 

27.  The  six  combinations  of  two  each  that  can  be  formed 
from  the  four  symbols  in  Art.  23  are  ^s  follows : 

(1)....1-A,  1-B  (4)....2-A,  1-Bi 

(2)....1-A,  2-A  (5)....2-B,  1-B 

(3)....1-A,  2-B  (6).... 2-A,  2-B 

28.  Before  proceeding  it  may  be  well  to  have  an  under- 
standing of  the  significance  of  the  characters  of  which  the 
symbols  now  under  consideration  are  composed,  which  has 
resulted  from  the  manner  in  which  they  were  first  intro- 
duced and  by  bearing  the  following  in  mind,  avoid  as  much 
as  possible  the  rrecessity  of  subsequent  reference  to  Art.  19, 
22  and  23. 

The  characters  referred  to  (as  component  parts  of  the 
symbols  in  question)  have  the  following  meaning  assigned 
to  them  :  viz : 

1,  indicates  a  debit  balance. 

2,  indicates  a  credit  balance. 

A,  indicates  a  debit  posting. 

B,  indicates  a  credit  posting. 

29.  As  each  of  the  symbols  has  thus  been  assigned  a 
definite  meaning,  said  meaning  has  been  in  no  way  changed 
bv  their  position  as  first  or  second  terms  in  the  combinations 
shown  in  Art.  27. 


30.  By  considering  the  definite  meaning  assigned  to 
each  of  said  symbols,  it  will  be  noticed  that  were  the  com- 
binations separately  applied  to  the  terms  of  a  journal  entry 
(of  two  items  only)  they  could  not  all  comply  with  that 
principle  of  double-entry  which  dernands  an  Equality  of 
debits  and  credits.  Of  these  combinations  those  which 
would  conflict  wtih  double-entry  principles  are  the  ones 
referred  to  as — 

(2)....1-A,  2-A  and  (5)....2-B,  1-B, 
for  the  reason  that  to  simply — 

Debit  a   debit  balance    (as   in    1-A) 

— and — 
Debit  a  credit  balance   (as  in  2-A) 
in  the  same  original  entry,  would  not  furnish  a  balancing 
credit:  while  to  simply — 

Credit  a  credit  balance   (as  in  2-B) 

— and — 
Credit  a   debit  balance    (as   in   1-B) 
in  the  same  original  entry,  would  not  furnish  a  balancing 
debit. 

31.  For  the  reasons  stated  in  Art.  30,  such  forms  of  orig- 
inal entries  as  1-A,  2-A  (combination  2)  and  2-B,  1-B  (com- 
bination 5),  when  considered  alone  as  given,  would  be  in- 
complete, and  therefore  could  not  correctly  occur  in  double- 
entry  work.  They  are  only  introduced  to  serve  their  pur- 
pose in  explaining  the  principles  evolved,  and  no  other  fea- 
ture of  importance  is  attached  to  them. 

32.  By  thus  eliminating  combinations  2  and  5,  the  orig- 
inal number  is  reduced  to  four,  viz:  1,  3,  4  and  6.  which 
are  the  only  ones  that  can  possibly  occur  in  the  same  original 
entry  (consisting  of  one  debit  and  one  credit  item),  when 
correctly  made,  and,  as  so  applied  ,may  be  further  illustrated 
through  the  following  journal  entry  forms. 


33.  Having  arrived  at  a  point  where  it  is  possible  to  ex- 
plain the  effect  which  various  entries  have  on  the  Trial  Bal- 
ance totals,  such  an  explanation  is  included  in  the  analysis 
appended  to  each  of  the  following  entries. 

34.  Entry  No.  1. 
(1-A)— Debit*  a  debit  balance.t 

(1-B) —        Credit*  a  debit  balance.f 

This  entry,  by  debiting  an  account  which  had  a  prior 
debit  balance  (1-A)  and  crediting  an  account  which  had  a 
prior  debit  balance  (1-B),  would  increase  the  fonner  and 
decrease  the  latter  (both  accounts  having  had  a  prior  debit 
balance)  in  a  similar  amount,  and  would  consequently  have 
no  effect  whatever  on  the  aggregate  amount  of  debit  bal- 
ances in  the  ledger  when  taken  as  a  whole. 

35.  Entry  No.  2. 

(1-A)— Debit*  a  debit  balance.t 
(2-B) —        Credit  a  credit  balance.f 

This  entry,  by  debiting  an  account  which  had  a  prior 
debit  balance  (1-A)  and  crediting  an  account  which  had  a 
prior  credit  balance  (2-B),  would  increase  both  the  debit 
and  credit  balances  of  the  accounts  affected,  and  would  con- 
sequently INCREASE  the  aggregate  amount  of  both  debit  and 
credit  balances  in  the  ledger  when  taken  as  a  whole. 

36.  Entry  No.  3. 

(2-A) — Debit*  a  credit  balance.t 
(1-B) —        Credit*   a  debit  balance.f 

This  entr>',  by  debiting  an  account  which  had  a  prior 
credit  balance  (2-A)  and  crediting  an  account  which  had 
a  prior  debit  balance  (1-B),  would  decrease  both  the  credit 
and  debit  balances  of  the  accounts  affected  and  would  con- 
sequently DECREASE  the  aggregate  amount  of  both  debit  and 
credit  balances  in  the  ledger  when  taken  as  a  whole. 


37.  Entry  No.  4. 

(2-A) — Debit'^'  a  credit  balance.t 
(2-B) —         Credit*  a  credit  balance. f 

This  entry,  by  debiting  an  account  which  had  a  prior 
credit  balance  (2-A)  and  crediting  an  account  which  had 
a  prior  credit  balance  (2-B),  would  decrease  the  former  and 
increase  the  latter  (both  accounts  having  had  a  credit  bal- 
ance) in  a  similar  amount,  and  would  consequently  have  no 
effect  whatever  on  the  aggregate  amount  of  credit  balances 
in  the  ledger  when  taken  as  a  whole. 

.  38.  A  simple,  yet  practical,  demonstration  of  the  prin- 
ciples previously  mentioned  may  be  found  in  the  "Illus- 
trative Example"  (Section  III),  which  illustrates  the  appli- 
cation of  "Adjustments  through  Elimination,"  and  in  which 
the  conditions  treated  through  the  entries  and  accounts 
there  given  are  shown  to  correspond  with  those  hereinbe- 
fore submitted,  while  all  similar  features  throughout  this 
treatise  are  given  the  same  symbols  as  a  means  of  reference. 

39.  The  important  features  which  have  been  developed 
through  the  analysis  of  the  foregoing  entries  are — 

1st. — That  such  entries  as  those  numbered  1  and  4  would 
neither  increase  nor  decrease  the  aggregate  amount 
of  debit  and  credit  balances  in  the  ledger  accounts, 
and  therefore  would  have  no  effect  whatever  on  the 
totals  of  the  preceding  Trial  Balance. 

2d. — That  such  entries  as  that  numbered  2  would  increase 
the  aggregate  amount  of  both  the  debit  and  the 
credit  balances  in  the  ledger  accounts,  and  therefore 
would  increase  the  totals  of  the  preceding  Trial  Bal- 
ance. 

tThese  titles,  "Debit  balance"  and  "Credit  balance,"  refer  espe- 
ciaUy  to  the  condition  of  the  accounts  affected,  before  the  postings 
are  made. 

♦These  titles,  "Debit"  and  "Credit,"  refer  especially  to  the  debit 
and  credit  items  of  an  original  entry. 


3d. — That  such  entries  as  that  numbered  3  would  decrease 
the  aggregate  amount  of  both  the  debit  and  the 
credit  balances  in  the  ledger  accounts,  and  there- 
fore would  decrease  the  totals  of  the  preceding 
Trial  Balance. 

40.  As  the  object  of  this  division  of  the  subject  is  to  ex- 
plain ''Why  Trial  Balance  Totals  Vary,"  it  is  evident  that 
the  particular  entries  which  cause  such  variations  are  the 
only  ones  to  be  determined,  and  for  this  reason  such  entries 
as  those  numbered  1  and  4,  which  embody  the  combinations 
(1)  1-A,  1-B  and  (6)  2-A,  2-B,  respectively,  require  no 
further  consideration  except  for  identification,  as  they  can 
"have  no  influence  in  changing  the  totals  of  a  Trial  Balance. 

41.  With  such  entries  as  1  and  4  eliminated,  we  have 
left  only  entries  numbered  2  and  3,  representing  combina- 
tions (3)  1-A,  2-B  and  (4)  2-A,  1-B.  Such  entries  as  the 
latter  (2  and  3),  when  appearing  in  the  records,  will  in- 
crease or  decrease  respectively  the  preceding  Trial  Balance 
totals  in  the  manner  explained. 

42.  Through  an  understanding  of  the  foregoing  princi- 
ples and  the  various  applications  that  are  herein  made  of 
them,  we  are  enabled  to  definitely  determine  and  select  from 
any  set  of  books  which  are  kept  in  accordance  with  the  prin- 
ciples of  Double  Entry,  and  regardless  of  the  nature  of  the 
business,  such  entries  as  will  result  in  varying  the  amount 
of  the  Trial  Balance  totals. 

43.  Therefore,  it  only  remains  to  formulate  a  systematic 
plan  through  which  a  practical  application  of  such  knowl- 
edge may  be  m.ade  to  conform  with  the  work  in  hand  as 
a  means  of  proof,  and  as  an  aid  in  the  location  of  errors. 


SECTION  II. 
Adjustments  through   Elimination. 

44.  Before  proceeding  with  this  division  of  the  subject 
it  may  be  well  to  repeat  that  all  symbols  which  have  been 
previously  adopted  herein  to  indicate  any  special  features 
correspond  with  those  which  are  hereinafter  used  in  con- 
nection with  features  of  a  similar  nature.  Some  of  these 
symbols  will  be  found  repeated  a  number  of  times  and  un- 
less the  reasons  for  the  variation  of  Trial  Balance  totals  are 
fully  understood  it  would  be  advisable  in  studying  the  sub- 
ject to  refer  to  the  features  previously  mentioned  simul- 
taneously with  those  of  a  like  nature  which  follow. 

Plan  of  Operation. 

45.  It  has  been  demonstrated  herein  that  the  combina- 
tions (3  and  4)  represented  by  entries  numbered  2  and  3 
when  considered  separately  and  alone,  are  the  only  ones 
that  can  possibly  affect  the  balancing  totals  of  a  Balance 
of  Balances,  and  it  is  therefore  necessary  to  adopt  some 
plan  whereby  all  other  entries  may  be  systematically  elim- 
inated.   This  may  be  accomplished  in  the  following  manner. 

46.  When  posting  an  amount  to  a  ledger  account  notice 
particularly  whether  the  account  balance  before  such  post- 
ing is  made  is  an  excess  of  debits  or  an  excess  of  credits, 
i.  e.,  whether  a  debit  or  a  credit  balance  did  then  exist. 

47.  In  a  ledger  where  a  balance  column  is  used  in  all 
of  the  accounts  and  the  new  balances  extended  as  each  post- 
ing- is  made,  the  information  referred  to  in  Art.  46  would 
be  obtainable  at  a  glance.  Wkere  balance  columns  are  not 
provided,  pencil  totals  under  every  posting  would  indicate 
quite  as  readily  the  condition  of  the  balance. 


48.  Having  determined  the  condition  referred  to,  some 
provision  must  be  made  for  recording  the  facts.  To  do 
this,  adopt  such  distinguishing  forms  for  the  posting  checks 
as  will,  when  written  opposite  an  item  in  an  original  entry 
and  after  the  item  is  posted,  indicate  plainly  not  only  that  it 
has  been  posted,  but  also  whether  the  balance  of  the  account 
affected  was  an  excess  of  debits  or  an  excess  of  credits  be- 
fore the  posting  was  made. 

49.  The  posting  checks  may  be  of  any  form  that  the 
Book-keeper  may  decide  to  use ;  but  the  nearer  they  are  re- 
lated through  their  generally  accepted  meaning  to  the  par- 
ticular use  that  is  made  of  them,  the  less  liability  there  will 
be — especially  while  learning — of  inadvertently  writing  the 
wrong  check  mark.  After  one  becomes  familiar  with  the 
system,  any  arbitrary  characters  that  can  be  quickly  writ- 
ten could  be  adopted  and  made  quite  as  intelligible. 

50.  For  the  purpose  of  this  explanation  the  letters  D 
and  C  are  used  for  posting  checks;  D  to  indicate  a  prior 
debit  balance,  and  C  to  indicate  a  prior  credit  balance  as 
having  existed  in  the  ledger  accounts  to — but  not  including 
— ^the  items  so  checked.  In  other  words,  if  before  an  item 
is  posted  a  debit  balance  existed  in  the  account  to  which 
such  item  is  transferred,  check  that  item  in  the  original  en- 
try and  after  the  posting  is  made,  with  the  letter  D,  and 
similarly,  if  the  balance  was  a  credit,  check  the  item  posted 
with  the  letter  C. 

51.  It  may  be  well  to  interpolate  at  this  point  as  a  gen- 
eral proposition,  that  when  a  bound  ledger  is  used  a  great 
saving  of  time  and  labor  may  be  accomplished  through  the 
use  of  posting  checks,  instead  of  writing  the  ledger  page 
only  as  each  item  is  posted  to  indicate  that  such  posting 
has  been  made. 


It  is  always  a  better  way,  as  a  posting  prelimiHary,  to 
take  the  ledger  index  and  page  all  items  in  the  original 
entries  simply  for  reference  purposes.  After  the  items  are 
paged,  lay  the  index  aside  and  check  (  v^)  each  item  as  it 
is  'posted.  If  the  plan  herein  described  is  made  use  of  the 
check  will,  of  course,  be  a  D  or  C.  This  obviates  the  ne- 
cessity of  referring  to  the  index  every  time  a  posting  is 
made. 

52.  WTiether  loose  leaf  or  bound  books  are  used,  some 
method  of  indicating  which  items  have  been  posted  is  re- 
quired, consequently  the  posting  check  feature  of  the  system 
herein  explained  will  not  occasion  any  additional  work, 
especially  if  combined  with  the  time-saving  method  of  pag- 
ing all  of  the  items  before  commencing  to  post. 

53.  After  the  postings  are  completed  and  the  items 
checked  (D  and  C)  the  books  of  original  entry  would  be 
in  shape  to  furnish  at  a  glance  the  following  necessary  in- 
formation, viz: 


54.     D  opposite  a  debit  item  (1-A)    ) 

— and —  >■  in  the  same  entry 

D  opposite  a  credit  item  (1-B)    ) 


would  show  that  it  was  similar  to  the  entry  herein  nunp- 
hered  1,  wherein — 

a  debit  balance  had    been  debited  (1-A)  and 
a  debiJt  balance  had  been  credited  (1-B). 

Entries  so  checked  would  have  no  effect  on  the  Trial  Bal- 
ance Totals. 


55.     D  opposite  a  debit  item  (1-A)   | 

— ^and —  >-  in  the  same  entry 

C  opposite  a  credit  item  (2-B)  ) 

would  show  that  it  was  similar  to  the  entry  herein  num- 
bered 2,  wherein 

a  debit  balance  had  been  debited  (1-A)  and 
a  credit  balance  had  been  credited  (2-B.) 

Entries    so   checked    would   increase   the   Trial   Balance 
Totals. 


56.     C  opposite  a  debit  item  (2-A) 

— and —  J-  in  the  same  entry 

D  opposite  a  credit  item 


2-A)    ) 
(l-B)  ) 


-would  show  that  it  was  similar  to  the  entry  herein  num- 
bered 3,  wherein — 

a  credit  balance  had  been  debited  (2-A)  and 
a  debit  balance  had  been  credited  (l-B). 

Entries  so  checked  would  decrease  the  Trial  Balance  To- 
tals. 

57.     C  opposite  a  debit  item  (2-A)    | 

— and —  >  in  the  same  entry 

C  opposite  a  credit  item  (2-B)  ) 

would  show  that  it  was  similar  to  the  entry  herein  num- 
bered 4,  wherein — 

a  credit  balance  had  been  debited  (2-A)  and 
a  credit  balance  had  been  credited  (2-B). 

Entries  so  checked  would  have  no  effect  on  the  Trial  Bal- 
ance Totals. 


58.  It  has  been  shown,  however,  that  entries  numbered 
1  and  4  need  not  be  considered,  as  they  have  no  influence 
on  the  Trial  Balance  totals;  while  every  entry  that  is  made 
which  corresponds  with  those  herein  numbered  2  and  3  will 
change  the  aggregate  debit  and  credit  balances  of  the  ledger 
accounts  in  the  amount  which  each  of  such  debit  and  credit 
items  represents. 

59.  When  all  amounts  in  any  stated  period,  which  the 
foregoing  method  has  demonstrated  as  being  the  cause  of 
variations  in  the  Trial  Balance  totals,  are  properly  com- 
bined with  the  totals  of  the  Trial  Balance  as  at  the  com- 
mencement of  said  period,  the  amount  of  the  balancing 
totals  of  the  next  succeeding  Trial  Balance  may  be  definitely 
determined. 

60.  Let  the  important  features,  therefore,  of  entries 
numbered  2  and  3,  be  emphasized  through  the  following 
repetition  of  facts  in  a  slightly  varied  form. 

61.  Entry  No.  2. 

$5.0e — (Checked  D.)     Debiting  a  debit  balance  as  in  1-A, 

— and — 

(Checked   C.)     Crediting   a   credit  balance   as   in   2-B— $5.00 

would  serve  to  increase  the  Trial  Balance  totals  in  the 
amount  of  its  corresponding  debit  and  credit  items  as  illus- 
trated below: 

Account  A. 


Prior  balance $10.00 

Posting  1-A 5.00 


Account  B. 


Prior  balance $20.00 

Posting  2-B 5.00 


It  will  be  noticed  that  the  posting  (1-A)  to  account  A 
has  increased  a  debit  balance  in  that  account  and  that  the 
posting  (2-B)  to  account  B  has  increased  a  credit  balance 
as  explained  in  all  references  to  entry  No.  2. 

62.  Entry  No.  3. 

$15.00 — (Checked  C.)     Debiting  a  credit  balance  as  in  2-A, 

— and — 

(Checked  D.)     Crediting  a  debit   balance  as  in   1-B — $15.00 

would  serve  to  decrease  the  Trial  Balance  totals  in  the 
amount  of  its  corresponding  debit  and  credit  items  as  illus- 
trated below : 

Account  C. 


Posting   2-A 15.0011    ^^^^  balance 30.00 

Account  D. 
Prior  balance 40.00  j|    Posting  1-B 15.00 

It  will  be  noticed  that  the  posting  (2-A)  to  account  C  has 
decreased  a  credit  balctnce  in  that  account  and  that  the  post- 
ing (1-B)  to  account  D  has  decreased  a  debit  balance  as 
explained  in  all  references  to  entry  No.  3. 

63.  Having  acquired  an  understanding  of  the  foregoing 
principles,  prepare  a  loose  Proof  Sh^ct  (or  use  a  book) 
with  two  money  columns  and  write  at  the  top  of  one  of 
the  columns  the  word  Increase  and  at  the  top  of  the  other 
column  the  word  Decrease.^ 

64.  After  completing  the  postings  for  a  page  or  a  day's 
work  as  explained,  examine  the  posting  checks  carefully 
and  selecting  such  entries  as  are  checked 

•Loose  sheets  ruled  with  ten,  or  even  more,  money  columns 
are  probably  the  best  to  use  for  this  purpose,  with  the  columns 
headed  lacreaae  and  D«cre«jie,  in  pairs. 


65.  D.  opposite  the  debit  item    ) 

— and —  >  in  the  same  entry 

C.  opposite  the  credit  item  ) 

write  the  amount  in  the  column  headed  Increase.     (Entry- 
No.  2,  1-A,  2-B.) 

66.  In  a  similar  manner  and  at  the  same  time,  select 
such  entries  as  are  checked 

C.  opposite  the  debit  item    ) 

and >•  iri  the  same  entry 

D.  opposite  the  credit  item  ) 

and   write   the   amount   in   the    column    headed   Decrease^ 
(Entry  No.  3,  2-A,  1-B.) 

67.  By  thus  selecting  only  such  entries  as  those  which 
are  properly  checked  D.  C.  or  C.  D.,  all  others  would  be 
eliminated. 

68.  When  the  Proof  Sheet  is  completed  to  the  point 
where  the  succeeding  Trial  Balance  is  to  be  taken,  the 
Proof  Sheet  columns  should  be  made  to  show  the  separate 
totals  of  all  items  of  Increase  and  Decrease  as  therein 
recorded. 

69.  To  the  balancing  totals  of  the  next  preceding  Trial 
Balance,  add  the  total  of  the  Increase  column  and  from 
the  amount  so  obtained  deduct  the  total  of  the  Decrease 
column,  when  the  remainder  will  represent  what  the  amount 
of  the  balancing  debit  and  credit  totals  of  the  next  suc- 
ceeding, or  current  Trial  Balance  should  be. 

70.  The  *  same  result  as  that  indicated  in  Art.  69  may 
also  be  shown  by  adding  or  deducting  the  excess  of  the 
increase  or  decrease  column  (respectively)  to  or  from  the 
totals  of  the  preceding  Trial  Balance. 


71.  By  thus  being  able  to  determine  what  the  balancing 
totals  of  any  Trial  Balance  should  be,  it  may  be  seen  at  a 
glance  after  the  (then)  current  Trial  Balance  is  taken, 
whether  either  one  or  both  totals  of  its  debit  and  credit 
columns  are  right  or  wrong  and  if  an  apparent  error  makes 
it  necessary  to  review  the  work,  the  search  for  discrepan- 
cies among  either  the  debit  or  credit  items  (whichever  is 
known  to  cover  an  error)  may  be  discontinued  as  soon  as 
the  records  are  adjusted  to  the  correct  amounts. 

12.  As  one  of  the  f>ossibilities  of  the  system  herein 
described,  it  may  be  suggested  that  if  every  book  of  original 
entry  which  is  used  as  a  posting  medium  should  be  provided 
with  two  extra  money  columns  to  be  used  especially  for  the 
items  of  increase  and  decrease  as  they  may  develop,  instead 
of  using  a  separate  Proof  Sheet  or  book  for  a  similar  pur- 
pose, the  monthly  totals  of  such  special  columns  could  then 
be  posted  to  a  special  account  in  the  ledger  that  would  serve 
as  a  continuous  controlling  account  for  the  Trial  Balances. 
By  this  plan  each  item  of  increase  or  decrease  would  appear 
in  direct  connection  with  the  original  entry  by  being  written 
on  a  line  opposite  the  entry  which  caused  the  variation. 

7Z.  In  offices  where  only  one  ledger  is  in  use,  the  plan 
of  using  a  controlling  account,  referred  to  in  Art.  72,  would 
serve  to  govern  the  ledger  as  a  whole ;  while  in  offices  where 
a  general  ledger  contains  a  controlling  account  for  each  of 
the  other  ledgers  in  use  by  what  has  been  termed  the 
"Sectionalized  Account  System,"  and  in  which  there  is  no 
controlling  account  for  the  general  ledger,  the  general 
ledger  itself  could  be  controlled  through  the  plan  herein 
explained. 

74.  It  should  be  noted  that  in  all  applications  that  have 
been  so  far  made  of  the  principles  involved,  consideration 
has  been  given  to  entries  consisting  of  one  debit  and  one 


credit  item  only,  as  indicated  in  Art.  25.  The  possibility, 
however,  of  several  debit,  or  several  credit  items  appear- 
ing in  one  or  both  sides  of  an  original  entry  makes  a  special 
and  separate  treatment  of  this  class  of  entries  necessary 
in  so  far  as  the  items  of  which  they  are  composed  are 
affected  by  the  conditions  indicated  by  the  posting  checks. 
These  features,  together  with  the  distinguishing  difference 
between  simple  and  compound  entries,  are  explained  in 
Sections  III  and  IV,  which  follow. 


SECTION  III. 

Illustrative  Example. 

75.  In  order  that  all  possible  variations  that  have  so  far 
been  mentioned  may  be  illustrated,  the  following  example  is 
made  to  include  all  of  such  entries  as  those  numbered  1,  2, 
3  and  4,  and  as  the  elements  of  which  this  system  is  com- 
posed are  equally  effective  in  their  influence  on  personal 
and  impersonal  accounts,  the  accounts  in  the  following  ex- 
ample are  designated  by  numbers  instead  of  names. 

76.  Let  it  be  supposed  that  the  balances  of  the  ledger 
accounts  appear  in  a  Trial  Balance  as  shown  below: 


Trial  Balance,  No.  1. 
(As  at  beginning  of  month.) 


Account  No. 
Account  No. 
Account  No. 
Account  No. 
Account  No. 
Account  No. 
Account  No. 


Account  No.  8 


Trial  balance  totals 


%   4001001 

200 

00 

$  550 
650 

i   800 

00 

11   600 

00 

11 

350 

\ 

450 

$2,000 

00 

$2,000 

00 
00 


00 
00 

00 


77 .  Let  the  next  supposition  be  that  the  subsequent  rec- 
ords are  such  as  those  which  follow,  and  as  we  know  that 
all  of  the  elements  of  double-entry  bookkeeping  may  be  ex- 
emplified through  journal  entry  forms,  the  introduction  of 
classified  posting  mediums  is  considered  as  an  unnecessary 
complication  at  this  point  for  which  reason  they  are  herein- 
after given  independent  treatment.  The  journal  entry  form 
of  original  entries  is,  therefore,  continued. 


Journal  Entries. 

7%.  The  letters  shown  at  the  left  of  the  following  items 
(D.  and  C.)  represent  the  required  posting  checks  which 
are  hereinbefore  explained.  The  symbols  in  parentheses  at 
the  right  are  for  reference. 

79.  By  examining  the  accounts  hereinafter  given  and 
noticing  the  condition  of  their  balances  before  the  following 
items  were  posted  (and  at  the  same  time  considering  Arts. 
48  and  50  relating  to  the  D.  and  C.  checks),  it  should  be 
understood  why  each  posting  check  in  the  following  entries 
is  used  as  shown.  All  items  in  the  entries  that  follow,  which 
influence  the  Trial  Balance  totals,  are  shown  in  the  illus- 
trated Proof  Sheet.     (Art.  89.) 

80.  Entry  No.  1. 

D. Account  No.   1,  25.00  (1-A) 

D. To  Account  No.  6,  25.00     (1-B) 

This  entry  by  debiting  an  account  with  a  prior  debit 
balance  and  crediting  an  account  with  a  prior  debit  balamce, 
has  no  effect  on  the  aggregate  balances  of  accounts  1  and  6 
and  therefore  need  not  be  considered  in  the  Proof  Sheet. 

81.  Entry  No.  2. 

D. Account  No.  2,  50.00  (1-A) 

C. To  Account  No.  7,  50.00     (2-B) 

This  entry  by  debiting  an  account  with  a  prior  debit  bal- 
ance and  crediting  an  account  with  a  prior  credit  balance, 
increases  both  the  debit  and  credit  balances  of  Accounts 
2  and  7,  respectively.  It  therefore  serves  to  increase  the 
totals  of  the  preceding  Trial  Balance  and  consequently  is 
entered  as  $50.00  in  the  increase  column  of  the  Proof  Sheet. 


52.  Entry  No.  3. 

C. Account  No.  3,  400.00  (2-A) 

D. To  Account  No.  5,         400.00     (1-B) 

This  entry  by  debiting  an  account  with  a  prior  credit 
balance  and  crediting  an  account  with  a  prior  debit  bcdance, 
DECREASES  both  the  credit  and  debit  balances  of  Accounts 
3  and  5,  respectively.  It  therefore  serves  to  decrease  the 
totals  of  the  preceding  Trial  Balance  and  consequently  is 
entered  as  $400.00  in  the  decrease  column  of  the  Proof 
Sheet. 

53.  Entry  No.  4. 

C ^Account  No.  4,  100.00  (2-A) 

C To  Account  No.  8,  100.00     (2-B) 

Tliis  entry  by  debiting  an  account  with  a  prior  credit  bcU- 
ance  and  crediting  an  account  with  a  prior  credit  balmice, 
has  no  effect  on  the  aggregate  balances  of  accounts  4  and  8 
and  therefore  need  not  be  considered  in  the  Proof  Sheet. 

84.  The  opening  balances  shown  in  the  foregoing  Trial 
Balance  No.  1  (Art.  76),  together  with  the  subsequent 
entries  numbered  1,  2,  3  and  4,  are  now  combined  in  the 
following  accounts  in  order  to  show  how  said  accounts 
would  appear  after  all  postings  had  been  made. 

85.  Account  No.  1. 

Balance 400.00    I 

Entry  No.  1 25.00  |( 

Account  No.  2. 


Balance 200.00 

Entry  No.  2 50.00 


Account  No.  3. 


Entry  No.  3 


400.00  II  Balance 
Account  No.  4. 


550.00 


Entry  No.  4 


100.00   II  Balance 
Account  No.  5. 


650.00 


Balance 


800.00  II  Entry  No.  3 
Account  No.  6. 


400.00 


Balance 


600.00     Entry  No.  1 
Account  No.  7. 


25.00 


Balance 

Entry  No.  2 

Account  No.  8. 


350.00 
50.00 


Balance .^  450.00 

Entry  No.  4 100.00 

86.    A  Trial  Balance  taken  from  the  foregoing  accounts 
in  their  present  condition  would  appear  as  below: 

Trial  Balance  No.  2. 
(As  at  close  of  month.) 


Account  No. 
Account  No. 
Account  No. 
Account  No. 
Account  No. 
Account  No. 
Account  No. 
Account  No. 


Trial  Balance  Totals 


425 

00 

250 

00 

150 
550 

400 

00 

575 

00 

400 
550 

1,650 

00 

1,650 

00 
00 


00 
00 


87.  It  will  be  noticed  that  the  corresponding  totals  of 
Trial  Balance  No.  2  as  at  the  close  of  the  month  (1,650.00 — 
1.650.00)  are  less  than  the  corresponding  totals  of  Trial 
Balance  Xo.  1  (Art.  76)  as  at  the  beginning  of  the  month 
(2,000.00 — 2,000.00)  which  is  purposely  so  arranged  to  il- 
lustrate the  possibility  of  such  totals  decreasing  in  amount 
as  referred  to  in  Art.  7.  It  therefore  follows  that  if  they 
can  so  decrease,  there  is  a  remote  possibility  that  under  cer- 
tain conditions  they  might  be  exactly  the  same. 

88.  The  Proof  Sheet. 

To  utilize  the  proof,  the  check  marks  shown  in  connection 
with  each  entry  must  be  carefully  examined  and  only  such 
amounts  as  are  found  to  be  checked — 


C  against  a  debit  item 

and V       in  the  same  entry 


D.  against  a  credit  item 
which  would  indicate  a  decrease 


i" 


D.  against  a  debit  item 


"fe 


— and —  y       in  the  same  entry 

C.  against  a  credit  item       ) 

which  would  indicate  an  in4:rease,  are  to  be  transferred  to 
the  Proof  Sheet. 

The  only  entries  so  checked  in  this  example  are  those 
numbered  2  and  3. 

The  remarks  under  each  of  the  entries  explain  how  they 
should  be  treated  and  on  completion  of  the  Proof  Sheet 
from  the  records  here  given,  it  would  appear  as  below > 


89.  Proof  Sheet  No.  1. 


Increase. 

1                   Decrease. 

Entry  No.  2  (D.  C).  50.00 
Balance;  or  exc^s  of 
decrease  column — 350.00 

Entry  No.  3  (C  D.)_400.00 

400.00 

400.00 

The  entry  numbers  and  posting  checks  shown  in  the 
above  Proof  Sheet  would  of  course  be  omitted  in  actual 
practice;  although  it  might  be  thought  advisable  to  use 
page  numbers  for  reference. 

Application  of  Proof. 

90.  The    balancing    totals    of    Trial    Balance 

No.    1,   as  at  beginning  of  the    month 

were $2,000.00 

From  the  above  deduct  the  excess  of  the 
decrease  column  shown  in  Proof  Sheet 
No.  1 350.00 

And  the  difference  resulting  is  the  same  as 

the    balancing   totals    of    Trial    Balance 

No.  2,  as  at  close  of  month $1,650.00 

Had  the  total  of  the  increase  column  exceeded  the  total 
of  the  decrease  column,  it  would  have  been  necessary  to  add 
such  excess  to  the  totals  of  the  preceding  Trial  Balance. 

91.  In  the  foregoing  example  the  work  has  been  proven 
through  the  use  of  only  two  of  the  eight  amounts  that  have 
been  posted ;  or  in  other  words  just  75  per  cent,  of  the 
postings  have  been  eliminated.  The  author  has  applied  the 
system  in  question  to  regular  work  where  85  per  cent,  of  the 
items  posted  were  eliminated  and  only  15  per  cent,  required 
to  be  shown  in  the  Proof  Sheet. 


92.  If  after  Trial  Balance  No.  2  was  taken,  either  the 
debit  or  the  credit  total  should  have  been  shown  by  the 
application  of  the  Proof  Sheet  balance  to  be  incorrect,  the 
search  for  discrepancies  would  be  made  through  an  exam- 
ination of  that  particular  side  of  the  records  (debit  or 
credit)  which  was  shown  to  vary  from  the  proven  amount. 
All  other  entries  would  thus  be  eliminated  from  the  search 
for  errors. 


SECTION   IV. 
Simple  and  Compound  Entries. 

93.  To  this  point  and  as  previously  mentioned,  only  such 
entries  have  been  introduced  as  consist  of  two  items  (one 
debit  and  one  credit)  but  as  other  combinations  of  items 
as  well  as  of  the  principles  involved,  and  of  a  more  com- 
plicated nature  are  possible,  such  features  will  next  receive 
attention. 

94.  The  system  herein  outlined,  recognizes  only  two 
classes  of  original  entries  and  would  be  so  applied  regard- 
less of  whether  the  books  of  record  comprised  only  one 
Ledger  and  one  Journal :  or  comprehended  the  most  exten- 
sive classification  through  niunerous  specialized  books  of 
columnar  records  for  the  inceptive  entries. 

95.  The  two  classes  of  entries  referred  to  are  herein 
denominated  as  Simple  Entries  and  Compound  Entries ;  but 
as  the  peculiarities  and  treatment  of  Simple  Entries  have 
been  quite  thoroughly  illustrated  in  connection  with  entries 
of  two  items  only  (one  debit  and  one  credit)  the  first  of 
the  following  definitions  is  only  given  to  differentiate  the 
two  forms. 

96.  A  Simple  Entry 

is  one  in  which  the  same  letter  (or  character) — C.  or  D. 
is  required  as  the  j>osting  check  for  all  debit  items  and  the 
same  letter,  C.  or  D.  for  all  credit  items  that  may  be 
included  in  the  same  entry.  It  may  therefore  have  one 
only,  or  any  number  of  items  in  one  or  both  sides ;  but  the 
posting  checks  for  all  debit  items  would  be  the  same  and  the 
posting  checks  for  all  credit  items  the  same. 


The   following  check  marks — only — will  illustrate  what 
are  here  treated  as  Simple  Entries,  viz: 


or 


etc 


A  Compound  Entry 
is  one  in  which  both  the  letters  (or  characters) — C.  and  D. 
are  required  as  posting  checks  for  either  the  debit  or  the 
credit  items  only,  or  for  both ;  and  may  also  include  one  or 
more  overbalancing  items.     (Art.  15.) 

This  may  be  illustrated  by  using  the  posting  checks  only 
as  below : 


or, 


etc. 


D 
(The  check  marks  above  shown  as  D  f  and  "J  C.       refer 
to  overbalancing  entries  which  are  explained  in  Art.  107 
and  108.) 

98.  The  foregoing  definitions  and  illustrations  of  Simple 
and  Compound  Entries  make  no  distinction  between  original 
entries  which  have  only  one  debit  and  one  credit  item,  and 
those  which  include  more  than  one  item  in  either  one  or 
both  sides,  as  the  number  of  items  in  an  entry  does  not 
constitute  the  distinguishing  feature  of  the  two  classes 
of  entries  referred  to;  this  being  governed  entirely  by  the 
combination  of  conditions  represented  by  the  required  post- 
ing checks  and  whether  one  only  or  both  (C.  and  D)  appear 
opposite  the  items  of  either  debit  or  credit. 


99.  Simple  entries  consisting  of  more  than  two  items 
should  be  treated  the  same  as  those  having  only  one  debit 
and  one  credit  as  hereinbefore  explained ;  but  the  elimina- 
tion of  Compound  Entries  which  have  no  effect  on  the 
aggregate  ledger  balances  or  Trial  Balance  totals  may  be 
accomplished  through  a  proper  app^lication  of  the  follow- 
ing: 

100.  General  Rule, 

(For  Compound  Entries  only.) 
Find  the  excess  of  either  the  debit  or  credit  total  of  all 
items  in  the  same  entry  which  bear  the  same  posting  checks, 
when — 

j   with  an  excess  of  debits 
(    (   will  indicate  a  decrease 
All  items  checked  C.  -{  — but — 

I  J  with  an  excess  of  credits 
i  will  indicate  an  increase 
— and — 

with  an  excess  of  debits 
will  indicate  an  increase 
All  items  checked  D.  -(  — but — 

with  an  excess  of  credits 
will  indicate  a  decrease 


-\ 


and  after  determining  the  facts  indicated,  write  the  amount 
of  said  excess  in  either  the  increase  or  decrease  colurnn  of 
the  Proof  Sheet  as  the  conditions  may  require. 

101.  As  the  difference  between  the  debit  and  credit 
total  of  all  items  checked  C.  and  that  of  all  items  checked 
D.  in  any  one  Compound  Entry  will  always  correspond  in 
amount,  it  is  only  necessary  to  consider  the  items  which 
bear  either  one  of  said  posting  checks  when  applying  the 
foregoing  rule. 

102.  To  illustrate  the  principles  that  apply  to  Compound 
Entries,  the  following  Entries  numbered  5,  6  and  7  are  sub- 


mitted  as  supplementary  to  those  given  in  Art.  80,  81,  S2 
and  83.  As  in  the  preceding  entries  the  letters  at  the  left 
represent  the  posting  checks,  while  the  symbols  at  the  right 
are  for  reference  only,  in  the  entries  given  below: 

103.  Entry  No.  5. 

C. Account  No.  3,  25.00 

D. Account  No.  2,  75.00 

C. Account  No.  7,  150.00 

C. To  Account  No.  4, 

D. To  Account  No.  1, 

D. To  Account  No.  6, 

To  determine  from  such  entries  as  this  whether  they 
result  in  decreasing  or  increasing  the  previous  Trial  Bal- 
ance totals  and  in  what  amount,  we  can  apply  the  rule 
given  in  Art.  100  either  to  all  items  checked  C.  or  to  all 
items  checked  D.  and  arrive  at  the  same  conclusion  as 
stated  in  Art.  101. 

In  applying  the  rule  to  the  items  checked  C.  we  have — 

In  debits,    25.00+150.00=175.00 
In  credits,  only  60.00 


(2-A) 

(1-A) 

(2-A) 

60.00 

(2-B) 

81.00 

(1-B) 

109.00 

(1-B) 

Excess  of  debit  items  checked  C. — 115.00  which  shows 
that  this  entry,  when  the  C.  checks  are  considered,  is  gov- 
erned by  that  clause  of  the  General  Rule  which  says  that 
"all  items  checked  C.  with  an  excess  of  debits  will  indicate 
a  decrease:'  This  entr}'  therefore  decreases  the  aggregate 
amount  of  opposing  ledger  balances  and  likewise  serves  to 
decrease  the  preceding  Trial  Balance  totals  in  the  amount 
of  $115.00. 

104.  To  illustrate  the  fact  that  a  corresponding  result 
would  have  been  obtained  through  a  consideration  of  the 
D.  checks,  the  following  application  of  the  rule  is  made. 


In  credits,  81.00+109.00=190.00 
In  debits,  only  75.00 


Excess  of  credit  items  checked  D. — 11 5.00  which  shows 
that  the  same  entry,  when  the  D.  checks  are  considered,  is 
governed  by  that  clause  of  the  General  Rule  which  says  that 
"all  items  checked  D.  with  an  excess  of  credits  will  indi- 
cate a  decrease."  Therefore,  the  application  of  the  rule  to 
the  items  checked  D.  furnishes  a  similar  result  by  showing 
that  a  decrease  of  $115.00  in  the  amount  of  opposing 
ledger  balances,  and  likewise  in  the  preceding  Trial  Balance 
totals,  would  result  from  the  entry  under  consideration. 

105.  For  the  reasons  stated,  when  analyzing  a  compound 
entry,  the  particular  items  which  are  checked  with  that  let- 
ter which  appears  the  fewest  number  of  times  in  such  entry, 
are  the  only  ones  that  need  to  be  considered,  and  many  times 
it  will  be  found  that  one  item  only  will  indicate  at  a  glance 
just  how  the  entry  should  be  treated.     (Art.  106.) 

106.  Entry  No.  6. 

C. Account  No.  8,  437.00  (2-A) 

D. Account  No.  6,  508.00  (1-A) 

C.^ To  Account  No.  3,  403.00         (2-B) 

C. To  Account  No.  7,  490.00         (2-B) 

C. To  Account  No.  4,  52.00         (2-B) 

In  this  entry  it  is  evident  at  a  glance  that  as  all  posting 
checks  are  the  same  (C.)  with  the  exception  of  the  one' 
debit  item  checked  D. — which  latter  is  all  that  makes  of  it 
a  Compound  Entry — the  amount  of  this  one  item  ($508.00) 
with  a  D.  check,  must  equal  the  difference  between  the 
total  of  the  debit  and  the  total  of  the  credit  items  which  are 
checked  C.  Consequently,  as  the  amount  of  all  debits  in  the 
entry  equals  the  amount  of  all  credit  items,  the  item  of 
$508.00  in  itself  alone  must  here  represent  the  excess  of 


debit  items  checked  D.  and  likewise  is  the  excess  of  credit 
items  with  a  C  check ;  either  of  which  references  to  said 
excess  indicates  an  increase  of  $508.00. 

If  the  D.  checks  are  considered  the  excess  is  governed 
by  that  clause  of  the  rule  (Art.  100)  which  says  that  "all 
items  checked  D.  with  an  excess  of  debits  will  indicate  an 
increase'' ;  while  a  consideration  of  the  C.  checks  shows  a 
similar  condition  as  "all  items  checked  C.  with  an  excess 
of  credits  will  indicate  an  increase." 

This  entry  therefore  increases  the  aggregate  amount  of 
opposing  ledger  balances  and  likewise  serves  to  increase  the 
preceding  Trial  Balance  totals  in  the  amount  of  $508.00. 

107.  In  the  preceding  explanation  of  ''Why- Trial  Bal- 
ance Totals  Vary"  (Art.  15,  16)  reference  is  made  to  oz'er^ 
balancing  entries  Avhich  create  in  the  accounts  to  which  they 
are  posted,  a  debit  balance  where  a  credit  balance  previously 
existed,  or  a  credit  balance  where  a  debit  balance  was 
shown  before.  In  such  cases  the  influence  of  that  portion 
of  the  item  which  exactly  equals  and  serves  to  cancel  the 
prior  balance,  should  be  shown  in  the  original  entry  by  there 
noting  the  amount  of  the  balance  that  is  cancelled  with  a 
C.  or  D,  check  attached  to  indicate  the  condition  of  said 
balance  (debit  or  credit)  before  the  posting  was  made,  while 
the  excess  or  overbalancing^  amount  should  be  treated  as 
creating  a  new  (and  contra)  debit  or  credit  balance  and  be 
properly  noted  and  checked  in  a  similar  manner  against  the 
same  item  in  the  original  entr\\ 

Such  overbalancing  items  will  thus  require  both  the  C. 
and  D.  posting  checks,  which  will  make  a  Compound  Entry 
of  any  in  which  they  may  occur. 

Overbalancing  entries  are  usually  comparatively  few ; 
but  to  illustrate  the  treatment  they  require  Entry  No.  7  is 
here  introduced : 


108.  Entry  No.  7. 

C. Account  No.  4,  444.00  (2-A) 

I,._325.00        .         _^^  ^^^^^^^^  ^^    2^         ^^^  .     (l-B) 

C— 119.00         )  (     (2-B) 

Considering  the  credit  item  in  this  entry,  it  may  be 
noticed  that  Account  No.  2  (Art.  110)  had  a  debit  balance 
of  $325.00  directly  before  this  credit  of  $444.00  was  posted 
thereto,  and  therefore  that  the  posting  of  this  credit  has 
served  to  overbalance  the  account.  Theoretically  then,  and 
as  previously  explained,  the  credit  of  $444.00  should  be  con- 
sidered as  consisting  of  two  parts,  one  of  which  in  the 
amount  of  $325.00  cancelled  the  prior  balance  of  Account 
No.  2,  while  its  other  part  in  the  amount  of  $119.00  vir- 
tually created  a  new  (and  contra)  credit  balance  in  the  last 
named  amount. 

It  is  therefore  evident  that  in  the  credit  of  $444.00  there 
is  $325.00  which  has  affected  a  debit  balance  (or,  as  in 
l-B,  Art.  23,  it  has  credited  a  debit  balance)  and  therefore 
is  checked  with  the  letter  D.;  while  $119.00  of  said  credit 
item  has  created  a  item  credit  balance  which,  as  explained 
in  Art.  17,  is  similar  in  its  effect  to  that  produced  by  cred- 
iting a  credit  balance  (as  in  2-B,  Art.  23)  and  therefore 
requires  a  C.  check. 

Here,  as  in  Entry  No.  6,  there  is  but  one  amount  shown 
with  a  D.  check,  and  consequently  the  $325.00  so  checked 
must  be  the  difference  between  the  debit  item  checked  C. 
and  the  (part  of)  credit  item  checked  C.  In  other  words, 
we  have  here  an  excess  of  credit,  with  a  D.  check,  and  also 
an  excess  of  debit  with  a  C.  check,  which  shows  that  this 
entry  is  governed  either  by  that  clause  of  the  General  Rule 
which  states  that  "all  items  checked  D.  with  an  excess  of 
credits  will  indicate  a  decrease/'  or  that  clause  which  states 
that  "all  items  checked  C.  with  an  excess  of  debits  will 


indicate  a  decrease.''  Entry  No.  7,  therefore,  serves  to 
decrease  the  aggregate  amount  of  opposing  ledger  balances 
and  likewise  decreases  the  preceding  Trial  Balance  totals 
in  the  amount  of  $325.00. 

109.  To  complete  the  illustration,  the  preceding  eight 
accounts  are  here  repeated  in  full  with  the  subsequent  post- 
ings from  entries  numbered  5,  6  and  7  included ;  these  forms 
being  followed  by  Trial  Balance  No.  3  and  Proof  Sheet 
No.  2 : 


110. 


Account  No.  1. 


Balance    400.00 

Entry  No.   1 25.00 


425    00 


Entry  No.  5. 


81.00 


Account  No.  2. 


Balance    200.00 

Entry  No.  2 50.00 

250    00 

Entry  No.  5 75.00 

325    00 


Entry  No.  7 444.00 


Account  No.  3. 


Entry  No.  3 

Entry  No.  5 

.__  400.00 
.__     25.00 

425    00 

'  Balance 

I  Entry  No.  6 

i 

.__  550.00 
___  403.00 

953   00 

Account  No.  4. 


Entry  No.  4. 
Entry  No.  7. 


100.00 
444.00 

544    00 


Balance 650  00 

Entry  No.  5 60.00 

710    00 

Entry  No.  6 52.00 

762    00 


Account 

No.  5. 

Balance    _ 

.__  800.00        Entry  No. 

1 

Account  No.  6. 

3___. 

.__  400.00 

Balance 

-       600.00     i 

Entry  -No. 

1___. 

5-__. 

-_       25.00 

Entry  No. 

6___. 

___  508.00     1 

1108    00         1 

Entry  No. 

.__  109.00 

134    00 

Account  No.  7. 

Entry  No. 

5__-. 

_-_  150.00     i 

Balance    _ 
Entry  No. 

2 

.__  350.00 
.__     50.00 

400    00 

Entry  No. 

6___. 

._.  490.00 

890    00 

Account  No.  8. 

Entry  No. 

6___ 

.„  437.00 

Balance    _ 
Entry  No. 

4___ 

_-.  450.00 
._.  100.00 

580    00 

111.     A  Trial  Balance  from  the   foregoing  Accounts  is 
shown  below  as — 

Trial  Bj^lance  No.  3. 


Account  No.  1- 
Accotint  No.  2. 
Account  No.  3. 
Account  No.  4_ 
Account  No.  5_ 
Account  No.  6. 
Account  No.  7. 
Account  No.  8. 


Tri^l  Balance  Totals. 


344 

00 

119 

528 
218 

400 

00 

974 

00 

740 

00 

113 

1,718 

1,718 

00 
00 
00 


00 
00 

00 


112.  To  illustrate  the  particular  entries  that  have  caused 
the  variation  between  the  balancing  totals  of  Trial  Balance 
No.  2  and  Trial  Balance  No.  3,  the  following  Proof  Sheet 
(No.  2)  is  submitted.  In  this  case  it  will  be  noticed  that 
each  one  of  the  entries  numbered  5,  6  and  7  influence  the 
result,  and  the  reasons  for  this  are  explained  under  the 
entries  referred  to,  in  Art.  103,  106  and  108.  After  being 
transferred  to  the  Proof  Sheet  they  would  appear  as  below : 


113. 


Proof  Sheet  No.  2. 


Increase. 

Decrease. 

Entry  No.  6 

508.00 

Entry  No.  5 115.00 

^  Entry  No.  7 325.00 

Balance,   or    excess 
of    Increase    col- 
umn                          68.00 

508.00 

508.00 

114. 


Application  of  Proof. 


The  balancing  totals  of  Trial  Balance  No. 

2  (Art.  86),  are 1,650.00 

To  the  above  add  the  excess  of  the  Increase 
column  as  in  Proof  Sheet  No.  2  (Art.  113)__        68.00 
and  the  resulting  difference  is  the  same  as  the 

balancing  totals  of  Trial  Balance  No.  3  (Art. 

111)    $1,718.00 

In  this  case  the  Trial  Balance  totals  have  been  increased, 
but  are  proven  to  be  correct  as  shown. 


SECTION  V. 

Special  Features. 

115.  It  is  not  within  the  province  of  this  treatise  to 
explain  more  than  its  title  page  imphes,  except  in  related 
subjects  which  its  detailed  consideration  has  suggested ;  but 
in  order  that  a  universal  application  of  the  principles  in- 
volved may  be  intelligently  and  correctly  made,  it  becomes 
necessary  to  introduce  a  limited  reference  to  certain  forms 
and  systems  of  record  which  have  been  designed  to  fulfill 
the  requirements  of  modern  accounting. 

The  forms  and  systems  referred  to  have  superseded  many 
antiquated  methods ;  but  as  they  are  too  numerous  to  war- 
rant a  more  extensive  treatment  in  these  pages  than  is  here- 
inafter accorded  them,  it  is  deemed  sufficient  to  include  all 
further  explanations  under  the  following  titles : 

The  Cash  Book. 

116.  As  there  are  offices  wherein  the  large  amount  of 
funds  to  be  accounted  for  has  influenced  the  separation  of 
this  particular  record  into  two  books ;  one  for  receipts  and 
the  other  for  payments,  while  in  many  instances  numerous 
columns  are  utilized  for  the  purpose  of  covering  special 
requirements,  it  should  be  noted  that  the  form  which  in- 
cludes all  cash  entries  in  one  book  and  in  two  columns  only, 
is  the  one  here  referred  to. 

117.  To  introduce  any  Cash  Book  forms  at  this  poist 
other  than  that  of  the  simplest  construction  would  only 
serve  to  complicate  the  application  of  principles  that  is 
made  and  for  the  same  reason  the  features  of  columnar 
records  as  variously  applied  to  Cash  Book  rulings  (as  well 
as  the  application  of  columns  to  all  other  varieties  of 
original  entries)  is  reserved  for  special  attention  in  the 
following  pages. 


118.  It  is  doubtless  well  understood  that  all  cash  entries 
could  be  made  in  a  journal  in  regular  journal  entry  form 
and  from  there  posted  to  a  Cash  Account  in  the  ledger  and 
still  comply  with  the  fundamental  principles  of  double-entry 
book  keeping,  through  which  method  all  former  applica- 
tions of  the  system  herein  outlined  would  correctly  apply. 
For  convenience  and  other  important  reasons,  however,  it 
has  long  been  customary  to  keep  a  separate  book  especially 
for  this  account,  in  which  the  original  entries  are  made, 
thus  eliminating  the  necessity  of  posting  the  items  to  a 
ledger  Cash  Account. 

The  special  Cash  Book^  therefore,  is  virtually  the  same 
as  such  a  ledger  account  would  be  and  as  it  is  impossible 
for  a  business  to  expend  a  larger  amount  of  funds  than  it 
receives,  the  balance  of  the  Cash  Book  must  invariably  be 
an  excess  of  debits. 

119.  For  the  reasons  stated,  whenever  an  entry  is  made 
on  either  side  of  a  Cash  Book  it  always  affects,  in  one  of  its 
twofold  influences,  a  debit  balance;  i.  e.,  the  permanent 
excess  of  the  Cash  Book  debits ;  while  its  opposing  influence 
when  the  item  is  posted  to  the  ledger,  may  aflFect  either  a 
debit  or  a  credit  balance  in  the  account  to  which  it  is  trans- 
ferred. 

120.  It  therefore  follows  that  in  so  far  as  the  Cash  Book 
is  concerned,  all  entries  made  therein  will  affect  a  debit 
balance,  which  debit  balance  would  exist  before  any  of  such 
entries  are  made  and  with  reference  to  this  influence  on 
the  Cash  Account,  entitle  them  all  to  be  checked  with  the 
letter  D.  as  explained  in  Art.  50.  This  feature  should  be 
understood,  although  the  special  check  mark  (D.)  need 
not  be  made  in  connection  with  the  Cash  Book  entries  as 
they  are  all  alike  in  this  particular. 


121.  When  a  Cash  Book  entry  for  a  receipt  or  payment 
is  posted  to  a  ledger  account,  it  should  then  he  checked 
with  either  the  letter  C.  or  the  letter  D.  as  the  conditions 
may  require,  and  to  indicate  whether  the  balance  of  the 
account  to  which  it  is  posted  was  a  debit  or  credit  excess 
before  the  posting  was  made. 

122.  In  selecting  items  from  the  Cash  Book  for  entry 
in  the  Proof  Sheet,  it  is  only  necessary  to  consider  those 
which  are  checked  with  the  letter  C,  regardless  of  whether 
the  entry  is  found  among  the  receipts  or  payments. 

123.  It  should  be  understood,  however,  that  all  items 
of  receipt  checked  C.  must  be  entered  in  the  increase  col- 
umn and  all  items  of  payment  checked  C.  must  be  entered 
in  the  decrease  column  of  the  Proof  Sheet. 

The  rule  given  in  Art.  123  may  be  better  understood 
through  an  inspection  of  the  following  illustrations,  and 
reference  to  the  articles  there  mentioned.  As  previously 
explained — Art.  119 — the  D.  checks  in  parentheses  at  the 
left  of  the  following  items,  referring  especially  to  the  debit 
balance  of  the  Cash  Account,  would  not  appear  in  connec- 
tion with  the  Cash  Book  entries,  while  the  checks  not  in 
parentheses  would  be  there  written  as  the  items  were  posted. 

124.  (D.)— Entry  on  Cash  Book  debit,  (1-A) 

D.  —    When  posted  as  a  credit  against  a 

debit  balance,  (1-B) 

would   be    similar   to    Entry    No.    1 
Art.  34.     See  section  1  of  Art.  39; 
also  Art.  54  and  Art.  80. 
For  reasons  stated,  items  checked  D.  on  Cash  Book  debit 
are  not  considered. 

125.  (D.)— Entry  on  Cash  Book  debit,  (1-A) 

C.  —    When  posted  as  a  credit  against  a 


credit  balance,  (2-B) 

would  be  similar  to  Entry  N«.  2  Art. 
35.     See  section  2  of  Art.  39;  also 
Art.  55,  Art.  61  and  Art.  81. 
For  reasons  stated,  items  checked  C.  on  Cash  Book  debit 
would  increase  the  Trial  Balance  totals. 

126.  (D.)— Entry  on  Cash  Book  credit,  (1-B) 

C.  —     When  posted  as   a   debit  against  a 

credit  balance,  (2-A) 

would   be    similar   to   Entry    No.    3, 
Art.  36.     See  section  3  of  Art.  39; 
also  Art.  56,  Art.  62  and  Art.  82. 
For  reasons  stated,  items  checked  C.  on  Cash  Book  credit 
would  decrease  the  Trial  Balance  totals. 

127.  The  foregoing  are  the  only  possibilities  in  Cash 
Book  entries  that  relate  to  the  point  in  question.  Elntry 
No.  4,  Art.  37  (the  only  other  form  of  entry  not  mentioned 
above  in  connection  with  the  Cash  Book)  could  not  occur 
through  a  Cash  Book  entry,  for  the  reason  that  both  terms 
of  this  form  of  entry  (2- A  and  2-B)  affect  credit  balances 
and  the  Cash  Book  balance  is  always  a  debit. 


Systems. 

128.  In  the  application  of  Adjust'inents  Through  Elimina- 
tion  it  is  only  necessary  to  recognize  two  general  systems 
of  record,  distinguished  by  the  following  peculiarities: 

129.  In  one  of  the  systems  referred  to,  only  one  ledger 
is  employed  to  include  all  of  the  accounts  of  the  business, 
both  personal  and  impersonal,  A.  to  Z.,  inclusive,  and  in 
which  no  provision  is  made  to  prove  separately  any  par- 


ticular  number,  division  or  class  of  accounts.  This  plan  may 
be,  and  sometimes  is,  extended  by  using  two  or  even  more 
ledgers  in  a  similar  manner,  instead  of  one;  each  of  the 
additional  ledgers  being  simply  a  continuation  of  the 
alphabetical  arrangement  of  accounts  in  the  one  which  next 
preceded  it. 

Such  a  system,  whether  consisting  of  one  ledger  or 
more,  I  will  venture  to  designate  as  the  Individualized  Ac- 
count System  (not  knowing  of  any  particular  term  in  use 
for  distinguishing  this  method  from  the  Sectionalized  Ac- 
count System — or  what  is  commonly  known  as  the  Sec- 
tionalized Ledger  Plan),  inasmuch  as  by  this  system  it  is 
customary  to  shov/  all  of  the  open  accounts  of  the  business 
individually  in  one  general  Trial  Balance  in  order  to  prove 
the  equilibrium  of  debits  and  credits.  As  thus  distinguished 
from  the  Sectionalized  Account  System,  it  should  be  noted 
that  the  Individualized  Account  System  is  the  one  especially 
referred  to  in  all  previous  references  herein  made  to  ledger 
accounts  and  to  such  a  system  all  principles  hereinbefore 
stated  and  as  explained,  will  correctly  apply.  Such  prin- 
ciples are  equally  applicable  to  that  system  which  will 
next  receive  attention. 

130.  In  some  offices  the  accounts  are  so  numerous  that 
it  would  be  impracticable  to  attempt  to  keep  them  all  in 
one  ledger,  and  the  fact  that  certain  important  information 
cannot  be  so  readily  obtained  with  even  two  or  more  ledgers 
under  the  Individualized  Account  System  as  could  be  done 
through  more  elaborate  plans,  shows  the  inadequacy  of 
such  methods  for  meeting  modern  requirements.  Another 
disadvantage  of  the  Individualized  Account  System  is  the 
inability,  through  its  limited  possibilities,  of  proving  the 
equilibrium  of  the  ledger  balances  otherwise  than  through 
a  consideration  of  all  of  the  open  accounts  of  the  business 


indivxdnially  listed  in  the  same  Trial  Balance.  By  this  plan 
no  provision  is  made  for  localizing  an  error  to  any  particu- 
lar division  of  the  records-f 

131.  To  overcome  the  difficulties  above  mentioned,  and 
for  other  important  reasons  that  need  not  be  considered 
here,  the  Sectionalized  Account  System  has  been  developed. 

By  this  plan  it  is  customary  to  keep  all  of  the  impersonal 
accounts — and  these  only — in  what  is  known  as  a  General 
Ledger,  with  one  or  more  separate  ledgers  to  contain  the 
personal  accounts  so  classified  that  no  accounts  of  a  dissimi- 
lar nature  will  appear  in  any  one  of  the  auxiliary  ledgers. 

The  accounts  are  thus  sectionalized,  and  in  order  that  the 
General  Ledger  may  contain  a  complete  record  as  to  condi- 
tions and  results,  each  section  (or  separate  auxiliary 
ledger)  is  represented  in  the  General  Ledger  by  a  special 
account.  These  special  accounts  are  debited  and  credited 
from  the  several  books  of  original  entry  with  the  monthly 
totals  of  all  items  which  are  posted  separately  to  the 
various  accounts  in  the  corresponding  auxiliary  ledgers, 
thus  making  the  balance  of  any  one  of  such  special  accounts 
in  the  General  Ledger,  exactly  equal  the  total  of  all  bal- 
ances contained  in  the  corresponding  auxiliary  ledger,  i.  e., 
the  excess  of  debit  or  credit  balances  in  an  auxiliary  ledger 
under  the  system  here  referred  to,  should  exactly  equal 
the  balance  of  the  corresponding  special  or  so-called  con- 
trolling account  in  the  General  Ledger,  and  w^hen  a  trial 
balance  is  taken  from  the  General  Ledger,  the  balances  of 
the  separate  controlling  accounts  will  indicate  what  the 
total  of  all  balances  in  the  corresponding  auxiliary  ledger 
should  be.*  

tThere  is  a  method  through  which  an  Individualized  Accruing' ^^4^*^*"%!^*^ 
Systenx  may  be  sectionalized  independent  of  the  ledger  or  ledgers 
in  use;   but  reference   is   here  made   to   such   plans   when   directly 
incorporated  as  a  part  of  the  ledger  system. 

•  This  explanation  is  only  given  to  avoid  any  possible  misun- 
derstanding regarding  the  system  here  referred  to;  but  other 
variations  in  the  Sectionalized  Account  System  are  known  to  be 
possible. 


132.  Each  auxiliary  ledger  would  thus  be  provided  with 
a  governing  or  controlling  account  by  which  to  verify  the 
correctness  of  iits  bala-nce;  but  there  would  he  no  similar 
method  of  determining  whether  the  General  Ledger  Trial 
Balance  was  correct  or  not,  and  it  is  among  the  possibilities 
that  even  an  equality  in  trial  balance  totals  may  cover  one 
or  more  compensating  errors  in  prior  records. 

133.  In  order  then  to  furnish  a  controlling  account  for 
the  General  Ledger  under  the  Sectionalized  Ledger  System, 
the  system  of  Adjustments  Through  Elimination  could  be 
used  by  handling  the  increase  or  decrease  amounts  obtained 
from  only  a  small  proportion  of  the  number  of  entries  made, 
instead  of  all  entries  as  in  the  other  controlling  accounts. 
Whether  the  totals  of  its  Trial  Balance  corresponded  or 
not,  it  would  thus  be  possible  to  determine  whether  either 
one  or  both  was  right  or  wrong. 

134.  Adjustments  Through  Elinujiation  are  therefore 
recommended  for  use  under  the  Sectionalized  Account  Sys- 
tem- in  connection  with  the  General  Ledger  only,  and  for 
this  purpose  the  C.  and  D.  checks  (or  others)  would  be 
noted  only  in  connection  with  such  items  as  appeared  in  the 
columns  especially  provided  in  the  books  of  original  entry 
for  the  General  Ledger  items,  and  for  the  totals  of  all  other 
columns  in  the  posting  mediums  through  the  plan  herein- 
after explained. 

Columnar  Records. 

135.  The  principal  advantages  derived  from  double- 
entry  records  aside  from  the  balancing  feature  of  debits  and 
credits  are  secured  through  a  systematic  classification  of 
the  items  of  which  the  records  are  composed. 

This  classification  may  be  accomplished  in  many  diflferent 
ways ;  but  that  system  which  reduces  the  duplication  of  the 


records  to  a  minimum  while  furnishing  all  needed  informa- 
tion and  at  the  same  time  avoiding  all  unnecessary  con- 
tingent complications,  is  the  most  desirable  and  economically 
efficient. 

When  the  books  of  original  entry  are  supplied  with  a 
sufficient  number  of  money  columns  (properly  headed)  to 
accomplish  such  a  classification  and  provide  a  place  for  every 
possible  variety  of  entry,  the  various  items  may  be  written 
in  the  particular  column  where  they  belong  when  they  are 
first  recorded.  It  is  to  books  of  this,  or  a  similar  nature, 
that  reference  is  now  made  regardless  of  the  purpose  for 
which  they  are  especially  designed  so  long  as  their  contents 
consist  of  items  which  find  a  final  resting  place  in  the 
ledger  accounts  and  are  thus  controlled  by  the  Trial  Bal- 
ance. 

136.  To  apply  the  principles  of  Adjustments  Through 
Elimitiation  to  columnar  records — as  defined — it  is  only 
necessary  to  combine  the  totals  or  items  which  are  posted 
to  the  General  Ledger  from  such  books  of  original  entry, 
in  a  regular  journal  entry  form  with  debits  and  credits 
equal,  and  then  apply  the  rules  hereinbefore  given  for  the 
use  of  the  C.  and  D.  checks,  when  their  influence  on  the 
Trial  Balance  totals  may  be  readily  determined.  This 
method  will  apply  to  Cash  Book,  Journal,  Sales  Book,  Pur- 
chase Register  or  any  other  form  of  columnar  record  that 
may  be  included  in  the  foregoing  definition. 

After  once  determining  what  posting  checks  apply  to 
the  totals  of  the  various  columns,  they  will  continue  to  apply 
to  said  totals  in  each  particular  book  unless  some  unusual 
conditions  should  arise,  or  some  ledger  account  to  which 
they  are  carried  should  be  of  a  variable  (debit  and  credit) 
nature.  The  General  Rule  in  Art.  100  will  apply  to  records 
of  the  kind  here  mentioned. 


C,   C?.   freeman, 

(Bonsulting  -Accountant  and  Auditoi' 

876  State  Qife  SBuU^ing 

%9ndianapolis    J/nd, 


UNTN'ERSTTY   OF  CALIFORNIA   LIBRAKY 
BERKELEY 

THIS  BOOK  I'S  ^E   ON  THE  LAST  DATE 
STAMPED  BELOW 

Books  not  returned  on  time  are  subject  to  a  fine  of 
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FEB  17  1919 


(^   rv2;1 


'^PR  2  4  J953 


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^ 


/  A  ,     — 


224469 


